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How do stablecoin issuers profit from US Treasuries and interest rates?
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A stablecoin is a cryptocurrency that aims to keep its value stable by pegging its price to some external asset, such as a fiat currency or commodity. For example, Tether (USDT) and USD Coin (USDC) are both stablecoins pegged 1:1 to the U.S. dollar. The goal of a stablecoin is to provide the advantages of digital currencies (such as fast, borderless transactions on the blockchain) without the price risk of Bitcoin's volatile fluctuations. Stablecoins strive to maintain price stability by holding reserve assets or adopting other mechanisms, making them more suitable as daily trading tools or as a means of storing value in the crypto market. In fact, most mainstream stablecoins achieve price stability through a collateral mechanism, that is, each stablecoin issued must be supported by an equivalent value of reserve assets.
The original purpose of stablecoins was to provide users with a reliable digital asset for payment or as a store of value pegged to major global currencies (especially the US dollar). However, their issuance was not for public benefit, but rather a highly profitable business opportunity, and Tether was the first company to discover and exploit this opportunity. Tether launched USDT in 2014, becoming the first stablecoin and creating an extremely profitable business model, especially from the perspective of "profit per capita", making it one of the most successful projects in history. Its business logic is very simple: Tether issues 1 USDT for every US dollar received, and the corresponding number of USDT is destroyed when the user redeems the US dollars. The US dollars received are invested in safe short-term financial instruments (such as US Treasury bonds), and the resulting profits belong to Tether. Understanding how stablecoins make money is the key to grasping the economic logic behind them.
Before analyzing the performance of stablecoins under different economic conditions, it is critical to understand the operating mechanisms of different types of stablecoins. Although the common goal of all stablecoins is to maintain a stable value pegged to real-world assets, each stablecoin reacts differently to changes in interest rates and the overall market environment.
The stablecoin ecosystem is closely tied to macroeconomic dynamics, especially interest rates. As this analysis shows, there are significant differences in the performance and sustainability of various stablecoin models in a scenario where interest rates fall to 0%.
The Federal Reserve kept interest rates at historically low levels (close to 0%) for a long time, and only began to gradually raise them as the economy gradually recovered from 2015 to 2018. However, the outbreak of the COVID-19 pandemic in early 2020 once again prompted a sharp reduction in interest rates to near zero in an effort to respond to the economic slowdown, ensure liquidity, and stabilize financial markets.
